Ransom opportunities for landowners

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News article

Ransom opportunities for landowners

September 2016

renewable energy news

Although the rush to build renewable energy projects has slowed down there are still other energy or residential/commercial developments that require third party land for either access, a grid connection or other service links. In addition, land already sold may have an “overage” clause on it whereby the original landowner can claim back a percentage of the increase in the value for the uplift over and above its normal agricultural value.

These potential “ransom opportunities” can produce large financial benefits to the adjoining landowners if their third party land is required for access or services. The “ransom” element applies even if only a few square feet of land is required, if the main development cannot take place without rights over this third party land.

Developers will often approach adjoining landowners for a grid connection offering them a one-off payment; a large number of landowners will happily sign up for a grid connection which may only be a few metres long for a one-off capital payment.  What is often not realised is that it really does not matter if the grid connection over the land is only one metre or 1000 metres as in each case a ransom situation applies, so the development cannot take place without reaching agreement with the third party landowner.  

The developer may try to say that the local District Network Operator (DNO) has compulsory powers if the one-off payment is not agreed.  What they say is correct but often any compulsory powers may take 1-2 years to implement. The DNO’s strongly resist going down this route and would rather the developer negotiate directly with the landowner.  It does not take much for development costs to enter 7 figure sums and there are very tight time limits when building projects so the developer needs to get the matter resolved very quickly. This can produce a fantastic negotiating position for the landowner, if they are aware that these opportunities exist.

Fisher German has been able to achieve some extremely large either one-off capital payments (or for tax reasons some landowners prefer to have large annual rental payments) for a service connection or access. Mark Newton, partner  sustainable energy, comments “I was approached by one landowner who was prepared to agree a grid connection for a short distance across his land to the sum of £100, and he wondered if I could increase his payment. I was able to get it settled fairly quickly for a sum well in excess of £100,000”.

A further often unrealised opportunity is that over the last fifty years, large areas of land has been sold with an “overage” clause whereby the original vendor sold the land for agricultural use only. However, if there was development obtained for the land which was originally thought to be for residential or commercial use then the original landowner will be entitled to a  percentage of the uplift in value. Mark Newton comments “After sometimes lengthy negotiations, I have seen overage payment figures anywhere between 25-80% of the additional non-agricultural value going back to the original vendor and settlements for large energy projects can reach in excess of £1,000,000”.    

Mark Newton concludes “the important thing for any landowner is to seek good professional advice from a specialist energy surveyor which will also involve specialist valuation advice for energy projects. The costs can often be paid for by the acquiring developer which means that there is often no cost to the landowner”. 

For further help and advice, contact Mark Newton at mark.newton@fishergerman.co.uk or call 07860 514474.

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